“As regards external competitiveness, the UK experienced a large drop in export market shares from 2007 to 2010. The trade balance has been negative since 1997, mainly as the result of a chronic deficit in goods trade. Nevertheless, export volumes have been a modest net driver of growth in the UK economy in the crisis period. Exports were 3.3% higher in 2011 than 2007, while total GDP remained below its pre-crisis peak. External performance in 2012 was worse than anticipated, although the current account is expected to continue to move towards a more balanced position in the medium term. The deterioration in the UK's current account balance in 2012 was mainly due to weaknesses in external demand and foreign income, in particular from European countries, unfavourable developments in oil trade, and buoyant imports despite the economic recession.”

The European Commission’s analysis argues that the UK’s net external position is still 'sustainable' and it 'expects' the current account to move towards balance. However, it makes devastating criticisms of the UK’s competitiveness:

• “Investment in infrastructure: there is significant scope for the UK to improve its transport infrastructure by addressing shortages in airport and seaport capacity, tackling road congestion and upgrading its rail network.
• Skill gaps: exporters require a labour force with the right skills. Intermediate and advanced technical skills are an area where evidence suggests that gaps and recruitment difficulties persist. As set out in this review, labour productivity growth in manufacturing has been slow in the UK and lags behind that of other advanced economies.
• Access to finance: difficulties in accessing finance are a cross-cutting problem at the current juncture, particularly for smaller and younger companies. They could be addressed at an economy-wide level, as well as with regard to the specific financing instruments for exporting companies.”

These problems have not been addressed for decades, and cannot be changed quickly. 'Services' earnings (with a major contribution from the City of London) have been of huge benefit for decades - hitting a massive 4.7% of GDP in 2011. But the path of European reform, quite apart from the UK’s own policies to rein back the financial sector, suggest that a renewed boom is the City’s earnings may be some way off. So the onus is being thrown back onto a traded goods sector that is steadily losing market share.

However, there is not a word in the Commission analysis of the UK about the obvious implication flowing from the whole 'Macro Imbalance Procedure' exercise to improve the competitiveness of all the EU’s Member States. That general improvement is bad news for the relative position of any who slip behind. Moreover, it is not just competitiveness within the EU market - the other EU members will become even more formidable competitors throughout the global market place. 

If these UK does not address these problems swiftly and comprehensively, what will happen to the current account deficit? How long will it remain sustainable?

This article was writtten for British Influence in the EU link to original article